S&P Global has downgraded the outlooks of five regional banks in the United States from stable to negative due to concerns about their exposure to commercial real estate (CRE) loans. The affected banks include First Commonwealth Financial, M&T Bank, Synovus Financial, Trustmark, and Valley National Bancorp.
The downgrade reflects S&P Global's assessment that stress in CRE markets could negatively impact the asset quality and performance of these banks. This decision follows the unexpected quarterly loss reported by New York Community Bancorp earlier this year, which was attributed to provisions on bad CRE loans.
Investors are concerned that rising borrowing costs and low occupancy rates for office spaces in the post-COVID-19 era may lead to more lenders facing losses due to loan defaults. Additionally, the banking sector is grappling with the increasing cost of retaining deposits in the face of high-interest rates.
S&P Global's negative outlook for these five banks aligns with the warning issued by Federal Reserve Chair Jerome Powell in March 2024. Powell cautioned regional banks about potential failures due to risks associated with CRE loans, highlighting the potential for further failures in the banking sector. This has raised concerns among investors and cast uncertainty over the future of the banking industry.